Download Chapter 9: Manufacturing and Traded Services Sector (Carol Newman)

Chapter 9: Manufacturing and
Traded Services Sector (Carol
Newman)
1 Introduction
• Continuous evolution: agriculture to
industry to services to specialisms
within each
• Definition of services (see earlier):
consumption and production take
place at same time.
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• Impact of crisis
• Huge role of traded sector (see
earlier): includes manufacturing,
traded services and agriculture (see
later). Need Xs to pay for vital Ms
(e.g. energy, machinery)
• US/EU still main players for Ireland
but China and India perhaps more in
future?
2 Role and Evolution of Industrial
Policy
Rationale for State
• Regional (back to pre-Famine days)
or equity dimension: roads, water,
broadband)
2
• Provision of essential broad
infrastructure
• Pooling of information: Ireland Inc
in marketing, investment (IDA, BFE)
• Productivity spill-overs (benefits of
rest of economy, for example work
practices
and
technology,
management skills).
• Ensuring competitive environment:
keep costs of NT sector down (e.g.
legal/accounting fees, electricity
prices)
• Infant industry argument (‘seedlings
in greenhouse’).
Start-ups and
innovation grants. Many will fail of
course.
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Policy in Ireland
• 1950s;
tax
breaks/grants
introduced, in response to failures
of 1930s
• Outward-looking policy in 1960s:
Whitaker (still alive at 99!), need for
Xs, DFI and diversification
• EU 1973 and euro 1999
4
• Exploiting links to Irish-America (see
history)
• English-speaking emphasis (but also
need foreign language, because all
third-level educated EU people
speak English anyway)
• Low corporation taxes: rate v base
issue
• Capital Grants
- IDA (foreign companies) and
Enterprise Ireland (domestic)
- Strategically
focussed:
e.g.
emphasis on subset of IT sector
and become a ‘hub’
- EU competition policy: must
trade/play with common rules
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• Regional policy: economies of
agglomeration
v
dispersion
advantages
• Buchanan
Report
in
1960s:
concentrate on three/four main
urban hubs; political ‘uproar’!
Future Policy
• Developments in euro zone: growth
emphasis,
corporation
taxes,
banking union
• Rise of China, India and Brazil:
overstated perhaps?
• Increasing trade in services: Google,
Paypal, e-bay, Facebook, and so on.
• Importance of innovation: driverless
cars, high IT robots.
Need to
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encourage entrepreneurship and
risk taking.
• ‘Knowledge’ or ‘Smart Economy’:
creative
industries
such
as
film/videos, popular music, design.
Or just ‘old hat’?
• Harmonised
corporate
tax
measures
3 Manufacturing Sector
• Employment: 190K; 64K ‘modern’,
126K ‘traditional’ (Table 9.1)
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• Employment: supplying companies
(add much more employment than
main company)
• E levels not growing
• Because high productivity sector a
mirage, due to profit switching?
Pharma Industry Ireland Image
• Contribution to exports (Table 9.2):
gross and net figures issues,
especially in relation to pharma
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industry (56% of all Xs in Ireland in
2014 in pharma!)
• For example, diamonds worth say
€10B imported to be polished.
Exported again, value €10.5B. Gross
X = €10.5B, NET X = €0.5B. An
extreme example granted!
• New innovation and management
practices
• 95% modern sector in Xs: euro area
main market by far. Decline of UK
• Traditional sector: 64% in Xs, 26%
per cent of total to UK
• Irish firms in traditional sector
• Only 33% exported, mostly to UK.
50% E.
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• Sterling problem: exchange rate
uncertainty. If UK in euro zone that
risk removed. But low € a boon
now!
4 Internationally-traded Services
• Shift to traded services
• IT, outsourcing, blurred distinctions:
e.g. legal services done in-house
contracted out. Included as part of
manufacturing prior to move, but
then as part of services.
• Definition and governance
Modes of Service Delivery:
• cross-border trade (call centres)
10
• consumption abroad (tourism):
consumers go to suppliers
• commercial presence: set up foreign
operations
• foreign presence: suppliers travel to
consumers (e.g. architects, ,
engineers)
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Contribution of Traded Services (very
unreliable data)
• Exports: 9th in world, 1/3rd of total
sales (Tables 9.3, 9.4 and 9.5)
• Intra-firm trade distortions (due to
transfer pricing)
• Sectoral and net exports picture:
tourism inward and outward. Both
flows could be very large but net
small negative/positive
5 Foreign Direct Investment
manufacturing and services)
(in
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Inward
• Dominates modern sector, strong in
traditional sector (Table 9.6)
• Most FDI intensive sector in Europe:
but linked to size (Table 9.6)
• Not just jobs and Xs but...
• New work practices and innovation
• Productivity spillovers
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• Measurement: huge amount of
research but findings inconclusive,
because of ‘counterfactual’ issue
• Corporation tax issue again
Outward (Table 9.6)
• Stock accounts for 171% of GDP:
huge
• CRH, Greencore, Kerry Group etc
• Mainly in UK and US
• Portfolio diversification: means not
dependent on one country for
supply and labour costs
• Reflects move into high-value
production: low value located
abroad? For example, BMW design
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and innovation in Germany,
manufacture in low-cost locations.
• State encouragement desirable?
6 Future
• Competitiveness the key: just like in
sport
• How to define (Ch 2)? Costs, quality,
reliability, safety, after sales
services, etc.
• Banking crisis and credit for MNCs
15
• Future of free-market capitalism;
following banking crash? Just a
passing ‘reflection for thought’?
• MNCs (low employment and
mobile) v SMEs (high employment
and less mobile)?
• Dependency or inter-dependency:
latter in globalised economy. Even
Greece learned that lesson.
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